Why India Increasingly Needs China, And Vice Versa

India and China share a complicated relationship. The world's two most populous nations are outright regional rivals who fought a border war in the 1960s. Relations have been at a low point since border clashes in 2020 left soldiers dead on both sides.Despite this, the two countries have growing economic ties. China has an assortment of critical technology and materials that India needs to fuel its manufacturing ambitions. China also sees an important new consumer market in India's growing middle class.Since US President Donald Trump waged a trade war against both countries, India and China have accelerated their efforts to repair ties. At the end of August, India's Prime Minister Narendra Modi visited China for the first time in seven years for a security summit — the latest sign of a fresh reset in relations with his country's powerful neighbor.

In late October, the first passenger flight between India and China departed from Kolkata five years after direct services were suspended. The restored air route between the two countries is expected to strengthen bilateral ties by boosting tourism, education and business travel between the two countries.India and China share a rivalry that stretches back to the years just after India's independence in 1947. They initially enjoyed a brief friendship, but when China took control of Tibet in 1950 it left the two sides with their first shared border in history, giving rise to tensions. India's decision to grant asylum to the Dalai Lama in 1959 following a failed uprising against Chinese rule led to the first major source of strain. Three years later, the two sides fought a brief war over their disputed Himalayan border that China decisively won. Left unresolved were competing claims in two key regions — Aksai Chin in the west and Arunachal Pradesh in the east.

Ties remained strained through the Cold War as India grew closer to the Soviet Union — China's then rival. In recent decades, China has pulled ahead rapidly as the dominant economic power of the two, but the post-Cold War era also brought an easing of tensions and growth in trade ties. However, Beijing's increasingly muscular foreign policy, as well as its deepening intervention in India's neighborhood through its Belt and Road infrastructure program, sowed mistrust in New Delhi into the 2010s.

Ties hit a fresh low after a border standoff in Doklam, a region bordering Bhutan, in 2017. Then, in 2020, a bloody border clash in Galwan in the Indian region of Ladakh sent relations into a deep freeze. India suspended tourist visas for Chinese nationals and erected restrictions against Chinese technology. It banned the sale of telecom equipment made by Huawei Technologies Co. and blocked Chinese video-sharing app TikTok. More recently, India has applied increased scrutiny on inbound investments by Chinese companies, including rejecting separate $1 billion investment proposals from Chinese auto majors BYD Co. and Great Wall Motor Co. to set up factories in the country. The renewed tensions also pushed India to cultivate closer ties with the US, whose rivalry with China was also deepening.

Suspicions over China continued to simmer during India's brief clash with Pakistan this year. Pakistan claimed Chinese-made J-10C jets were used to shoot down five Indian fighter jets during the conflict. India said China also provided its enemy with air defense and satellite support. Separately, China has grown increasingly wary of India's push to take manufacturing market share, as Beijing makes it more difficult for employees and specialized equipment to leave its shores and Chinese staff in India get recalled home.

Despite these frictions, India and China have an important economic relationship. China is India's second-largest trading partner behind the US thanks to India's appetite for Chinese consumer goods. The two sides traded $127 billion of goods last year, although most of that — $109 billion — were Chinese exports to India.India's industrial ambitions increasingly hinge on access to Chinese technology. For example, India imported nearly $48 billion worth of electronics and electrical equipment from China in 2024 — which underscores just how much the country relies on Chinese parts for its assembly of electronics, from smartphones to telecom networks. Similarly, its vaunted pharmaceutical industry imports the majority of active pharmaceutical ingredients from China.

India is also heavily reliant on China for rare earth magnets in order to meet its ambitious goals in the electric vehicle, renewable energy and consumer electronics sectors. China's curbs on its rare earth magnet exports, which hit India harder than other manufacturing nations, threatened to put its auto sector at a standstill.But it's not just goods and hardware that India needs from China. For its most critical technology needs — from EV batteries to clean power storage — and its ambitions to build cheap, renewable solutions for its 1.4 billion people, it also needs China's skillset and technological know-how.

In these sectors, where local expertise is lacking and alternatives are scarce, some of the country's biggest conglomerates are quietly exploring partnerships with Chinese firms. Indian billionaire Gautam Adani, for example, has visited China to meet executives at CATL, the world's largest battery maker, and has held preliminary talks with Chinese EV giant BYD about a potential battery manufacturing tie-up. Sajjan Jindal's JSW has already struck a deal with Chery Automobile Co. to source technology and components for its electric-vehicle push.

Beijing, too, has strong incentives to keep India close. With its domestic growth slowing, China sees India's consumer market, driven by its mammoth population, as one of its few remaining expansion frontiers. In 2024, India imported and sold approximately 156 million smartphones — this rapid digital adoption is a goldmine for Chinese device-makers Xiaomi, Vivo and Oppo that already dominate Indian sales.India, as the world's third-largest car market with roughly 4.3 million passenger vehicles sold in 2024, is another target market. Chinese automakers, notably BYD, have openly targeted this growth, previously declaring ambitions to capture up to 40% of India's auto market.

Beyond supply chains, China's tech giants have poured billions into India's startup ecosystem. Firms like Alibaba Group Holding Ltd. and Tencent Holdings Ltd. actively funded unicorns such as Paytm, Zomato, Ola Electric and Byju's, betting on India's rising digital economy and consumer appetite.And just as Indian firms see benefits in partnering with Chinese companies, Chinese firms too see advantages in collaborating with their Indian counterparts as they navigate India's complex regulatory landscape and seek access to one of the world's fastest-growing consumer markets.

Steps by both countries to repair ties have gained momentum in the last year, with high-level diplomatic visits by officials from both sides and greater outreach by business executives.In July, India's External Affairs Minister Subrahmanyam Jaishankar visited Beijing, his first visit since 2020. And in August, China's Foreign Minister Wang Yi visited New Delhi for the first time in three years. Both officials expressed a renewed spirit of cooperation between the two countries.There have been other signs of a thaw. Beijing has loosened curbs on its urea exports to India, New Delhi has reinstated tourist visas for Chinese nationals.

A big step toward improved relations came on Aug. 31 when Modi met with China's President Xi Jinping at the Shanghai Cooperation Organization summit in Tianjin. During their meeting, according to a top Indian official, the leaders discussed ways to increase and balance bilateral trade, strengthen people-to-people ties, cooperate on trans-border rivers and jointly fight terrorism.On Oct. 26, the first passenger jet in more than five years flew direct from India to China, in a new sign of warming relations. More direct flights are expected between the two countries; China Eastern Airlines Co. has announced services between Shanghai and Delhi will begin in November, and Air India is also working on a plan to reinstate direct flights, according to people familiar with the discussions.

Though the closer ties preceded the beginning of the second Trump administration, the thaw is driven to some extent by the US's about-face on India. During Trump's first term as president, the US saw India as a close partner in countering China. This time around Trump has taken a tougher approach toward India, slapping it with high tariffs, criticizing its trade barriers and attacking it for its purchases of cheap Russian oil. These moves have put China and India in a similar corner when it comes to Trump's trade war.

There are reasons to be skeptical that India and China are headed for a full rapprochement — and there is little indication that India plans to ditch its tech curbs and other investment restrictions on China anytime soon. Memories of the 2020 border clash remain fresh on both sides, and the border disputes that fueled the clashes remain unresolved.For India, the hesitation is obvious: Becoming too dependent on China risks repeating the vulnerabilities of the past. Supply chain shocks, from rare earth curbs to export restrictions on key components, have shown how Beijing can just as easily cut access as provide it.

For China, the risk is more strategic. Beijing knows India is on the same development path China once took: importing foreign know-how to leapfrog into new industries. That history makes Beijing cautious about transferring too much expertise, since India could emerge as a direct competitor in green tech, electronics and clean mobility.At stake is whether India can secure the technology it needs to meet climate goals and build affordable solutions for its vast population, or whether China will limit access to protect its global dominance. For Chinese companies, the lure of India's market is immense, but so too is the fear that today's partnerships could eventually seed a powerful rival.

Source: Bloomberg Europe